Why Car Insurance Is So Expensive Today

Why Car Insurance Is So Expensive Today

If you’ve opened your annual car insurance renewal lately and felt your stomach drop, you’re not alone. Over the last several years many drivers have seen premiums climb steadily. For a typical driver the annual premium moved from roughly $1,100 to $1,700 in some regions between 2019 and 2024, an increase that feels abrupt at the kitchen table. The reasons are many and interconnected: rising repair costs, more expensive medical claims, changing driving behavior, supply chain disruption, and broader economic forces like inflation and lower investment returns. In this article I unpack the practical causes behind today’s higher car insurance prices, show realistic numbers to make the shifts easier to understand, and give guidance on what drivers and policymakers can do.

Quick snapshot: how prices have changed recently

Across the United States, average annual auto insurance premiums vary widely by state, driving history and coverage levels. National averages are useful for the big picture: in 2019 a typical full-coverage auto policy cost roughly $1,100 to $1,300 per year for a middle-of-the-road driver. By 2023–2024, typical national averages rose into the $1,600–$1,800 range for similar coverage and driver profiles. Those increases are not even across the board: states with larger urban populations, higher repair rates and tougher legal environments saw larger jumps, while some rural states saw smaller increases.

1. Repair costs and vehicle technology: the largest single driver

One of the clearest drivers of higher premiums is the rising cost to fix cars. Modern vehicles are packed with safety sensors, cameras, radars, and sophisticated plastics and electronics. Replacing a front bumper is no longer just sheet metal and paint; a collision can require recalibrating cameras and sensors that cost thousands of dollars. Between 2019 and 2023 the average collision repair bill increased markedly. Where a typical repair might have been $2,500 five years ago, by 2023 the average had climbed to around $3,600, with some complex repairs well above $8,000 for newer models.

Supply chain problems during and after the pandemic amplified this trend. Replacement parts became harder to source, wait times at repair shops stretched out, and labor costs rose. The result is higher payouts by insurers and longer claim cycles, both of which translate into higher premiums.

“Automotive technology is a double-edged sword,” says Dr. Linda Martinez, a professor of Insurance Economics at the University of Michigan. “Safety features can prevent injuries, but they also make repairs far more expensive. When the cost of fixing the car doubles, insurance math forces prices up.”

2. Used car values and claim severity

Used cars spiked in value during pandemic years due to shortages of new cars and production slowdowns. A year or two ago a lightly used compact sedan could sell for 25 to 40 percent more than it did pre-pandemic. Higher vehicle values increase total-loss payouts when cars are declared totaled after accidents. If a vehicle that used to be worth $10,000 is now $15,000, the insurer pays the difference. In 2021 and 2022 the rise in total-loss payouts added materially to insurers’ claim costs.

“When overall claim severity goes up, insurers respond by raising premiums. Total-loss values jumped and so did repair costs, which compounded the expense in the loss portfolio,” says Marcus Lee, an automotive industry analyst with GreenRoad Research. “Even as used car prices moderate, the baseline costs have not come back down to 2019 levels.”

3. Medical inflation and liability claim increases

Insurance is not just about fixing metal and glass. Bodily injury claims are a significant piece of the payout pie, and healthcare inflation has run ahead of general inflation. Medical costs per claim for auto injuries have increased substantially over the past decade, reflecting more expensive procedures, higher emergency care costs, and rising rehabilitation expenses. For example, average medical payouts for injury-related claims have increased 20–40 percent in many jurisdictions since 2019 depending on local healthcare pricing.

Legal environments in some states have also led to larger jury awards and settlements, pushing liability costs higher. Litigation trends, attorney involvement and the multiplication of complex claims (for example involving long-term care) all drive severity upward.

“Medical inflation directly affects insurance payouts,” explains Aisha Khan, a claims analyst at Veritas Analytics. “Even if the number of injury claims is stable, the average cost per claim has climbed. That forces insurers to factor in larger loss reserves and ultimately adjust premiums.”

4. Increased miles and changing driver behavior

The pandemic initially reduced miles driven, which temporarily lowered claims and even led some insurers to issue refunds. However, as economies reopened and work patterns shifted, miles driven returned and in some areas exceeded previous levels. By 2022 and 2023 many regions saw increased commuting and leisure travel, which raised exposure and claim frequency.

Another behavior contributor is distracted driving. The ubiquity of smartphones, more aggressive driving patterns, and a general increase in risky behavior have raised accident frequency. Insurance companies report higher claims frequency in urban corridors and on interstates where congestion and distracted driving combine. In short, more driving plus riskier driving equals more claims and higher premiums.

5. Fraud, staged accidents and increased claims complexity

Insurance fraud, including staged collisions and exaggerated claims, adds a hidden cost to the system. Insurers estimate the cost of non-health insurance fraud at billions of dollars annually. Even if fraud represents a single-digit percentage of overall claims, the dollar impact is significant because cases can be complex, involve multiple claimants, and drive up legal and investigative costs. Those hidden expenses are recovered through higher premiums across the insured population.

“Every dollar paid on a fraudulent claim is a dollar that ultimately gets spread across honest policyholders,” says James O’Connor, CEO of SafeDrive Insurance. “We invest more in fraud detection and case management, but those investments add to operating costs which are reflected in rates.”

6. Weather events and catastrophe exposure

Climate change and more volatile weather patterns are increasing the frequency and severity of weather-related claims. Hail storms, flooding and severe storms can create massive spikes in claims in a single season. For instance, a major hail event in a metropolitan area can generate tens of thousands of claims and hundreds of millions in payouts. Insurers have to price for the risk of such events and often buy reinsurance to cover extraordinary losses, which increases the overall cost base.

From 2018 to 2023 the number of billion-dollar weather events in the U.S. increased, placing additional strain on P&C insurers and contributing to periodic rate increases in affected states.

7. Reinsurance and investment returns

Insurance companies buy reinsurance to protect themselves from unusually large losses. Reinsurance premiums have been volatile and, at times, have increased when reinsurers face losses of their own or when global capital markets tighten. Higher reinsurance costs translate into higher primary insurance rates for consumers.

Additionally, insurers rely on investment income from premiums they hold before paying claims. In a low interest rate environment, investment returns are reduced, so insurers offset lower investment income with higher underwriting rates. When interest rates began to rise, some insurers benefited from better returns, but rate-setting lags and already-elevated loss costs meant premiums did not immediately decline.

8. Underwriting performance and the rate-setting cycle

Insurance pricing is forward-looking. If insurers experience underwriting losses in a period—meaning they paid out more in claims and expenses than they collected in premiums—they will raise rates to rebuild reserves and profitability. Payouts that exceeded expectations in 2021–2023 prompted a wave of rate filings in 2022 and 2023 across many states. Those filings, when approved by state regulators, led to widespread premium increases for drivers.

“Underwriting cycles matter,” notes Priya Nair, a consumer advocate at Citizens for Fair Rates. “When an industry sustains losses for multiple years, price correction becomes necessary. Regulators try to balance consumer protection with insurer solvency, but that equilibrium can take time to achieve.”

How insurers allocate your premium dollars

Understanding where money goes helps make sense of rising rates. Premium dollars cover paid claims, claim adjustment expenses, operating costs, state taxes and fees, reinsurance, and a margin for profit and reserves. The proportions vary by insurer and product, but a realistic breakdown for a typical auto insurer in recent years looks like this: 70 to 75 percent for claims (including loss adjustment expenses), 15 to 18 percent for underwriting and operating expenses, 3 to 6 percent for state taxes and assessments, and 2 to 5 percent for profit and contingencies.

Regional differences: why your neighbor pays less or more

Insurance is local. Two drivers with identical vehicles and records can pay very different premiums because of where they live. Factors like state-level regulations, average claim severity, fraud rates, population density, weather exposure, and local medical costs all play a role. For example, drivers in Florida and Louisiana have some of the highest average premiums in the U.S. due to a combination of weather risk, fraud, and high litigation costs. Conversely, states with lower urban density and fewer claims tend to have lower average premiums.

The table below gives a snapshot of average full-coverage premiums in six representative states as of 2024 estimates. These numbers are illustrative of regional variation and help explain why your renewal can feel unfair if rates in your market are moving up faster than the national average.

What insurers and regulators are doing

To manage higher loss costs and maintain solvency, insurers are deploying several strategies. Some are tightening underwriting, which means they become more selective about risks they will insure. Others are raising premiums across broad product lines. Insurers are also investing in fraud detection, automated claims processing, and partnerships with repair networks to control costs and speed up repairs.

Regulators play an important role in reviewing rate filings and protecting consumers. In many states regulators have pushed back on proposed rate increases or asked insurers for more data to justify hikes. At the same time, regulators must balance consumer protection with the need to keep insurers financially healthy so they can pay claims when disasters strike. The result is often a compromise where approved increases are smaller than requested but still material to consumers.

Expert perspectives on the immediate future

“We may see a moderation in premium increases as supply chains normalize and used car prices ease,” says Dr. Linda Martinez. “But a return to pre-2019 price levels is unlikely because vehicle repair technology and medical costs have fundamentally shifted the cost baseline.”

Aisha Khan adds, “Insurers are getting smarter about risk segmentation. Usage-based insurance programs and telematics give insurers more precise data on driver behavior. Drivers who participate and demonstrate safe habits can see meaningful savings, but it will take time for those programs to penetrate the market broadly.”

James O’Connor stresses the operational perspective: “We are investing in AI claims triage, stronger fraud detection, and direct relationships with OEM-approved repair centers. These investments reduce claims leakage over time but add to short-term expenses, which shows up in pricing.”

What drivers can realistically do to lower their premiums

There are several practical steps drivers can take to reduce their premiums or at least slow the rate of increases. The most straightforward is shopping and comparing rates. Insurance carriers price risk differently, and a comparative shopping exercise every 12 months can reveal substantial savings. Increasing deductibles on collision and comprehensive coverage can reduce premium cost, but drivers must ensure they have the cash reserves to cover higher out-of-pocket expenses should a claim occur.

Safe driving is the most sustainable long-term strategy. Clean driving records reduce renewal pricing and keep drivers eligible for multi-year safe-driver discounts. Participation in usage-based insurance or telematics programs can produce meaningful reductions for low-mileage or safe drivers. For many drivers, bundling auto and home insurance with the same carrier creates additional multi-policy discounts. Maintaining an accurate profile with your insurer—such as updating mileage, job changes, or primary driver status—ensures you are not overcharged.

Vehicle choice matters too. Buying a car with a lower claim repair cost and good safety ratings can reduce premiums. Cars with very expensive replacement parts, high theft rates, or advanced but costly-to-repair sensors often attract higher insurance costs. Finally, taking proactive steps like installing an approved anti-theft device can qualify you for discounts in many states.

Illustrative examples: how small changes add up

Consider three drivers in 2024 with full coverage policies averaging $1,700 per year. Driver A makes no changes. Driver B increases her collision deductible from $500 to $1,000 and shops for a new carrier at renewal, saving 15 percent; her annual premium falls to about $1,445. Driver C installs a telematics device, reduces annual mileage by 25 percent through a hybrid work schedule, and bundles his policies, reducing his premium by roughly 30 percent to about $1,190. These examples show how behavioral and coverage adjustments can materially affect costs.

Longer-term industry trends to watch

In the medium term expect several trends to influence premiums. Fleet electrification and the rising share of EVs will shift repair patterns and parts availability. Electric vehicles often cost more to repair but may have fewer mechanical failures; insurers will adjust pricing as more loss experience data accumulates. Autonomous driving features promise fewer accidents but create new complexity for liability allocation, sensor repair and software updates.

Another important trend is the increased use of data and machine learning in pricing and claims. That means more personalized rates: safe, low-mileage drivers may benefit from lower prices while high-risk drivers will see sharper differentiation. Finally, any changes in state tort laws or regulatory frameworks that limit non-economic damages or adjust fee schedules for medical services would materially affect liability costs and thereby premiums.

Addressing common questions

Will my rates go down soon? It’s possible in markets where claims costs moderate, used car values decline, and repair supply chains normalize. But many of the structural cost drivers—advanced technology in cars and rising medical costs—are long-term, so a permanent reversion to pre-2019 prices is unlikely.

Are insurers making unexpectedly large profits? Not necessarily. While public companies report profits, those profits are relative to their investment income, underwriting results, and reserve releases. Several insurers posted underwriting losses in recent years and raised rates to rebuild reserves. Profit levels vary by issuer, and regulatory scrutiny often limits sudden spikes in pricing.

Is there anything policymakers can do? Yes. Policies that reduce fraud, improve repair efficiency (for instance through OEM-part availability rules), and stabilize medical damages could lower claim severity. At the same time, policymakers must be careful not to undercut consumer protections as cost controls are considered.

Final thoughts from the experts

“Consumers should understand that today’s higher premiums reflect a number of structural changes, not a single glitch,” says Dr. Linda Martinez. “Being proactive—shopping rates, improving driving habits, and considering usage-based programs—is the best defense.”

James O’Connor closes with an operational take: “The insurer’s role is to remain solvent so we can pay claims when people need us. That means pricing must reflect real-world costs. We are constantly trying to balance fairness and sustainability.”

For drivers feeling squeezed, the path forward is a mix of smart shopping, risk-reducing behavior, and advocating for reforms that directly target the most costly drivers of claims inflation. Understanding the forces at play helps make conversations with agents and regulators more productive and gives drivers better control over their own insurance costs.

Appendix: Practical checklist to consider at renewal

Start your renewal process by gathering quotes and reviewing your coverage limits. If your car is older and the gap between your deductible and vehicle value is small, consider dropping collision coverage. Ask about available discounts, such as multi-policy, safe driver, low-mileage, or anti-theft device discounts. If you drive less than before, report lower annual mileage to your insurer or explore pay-per-mile policies. For those with a clean driving record, inquire about usage-based programs that can provide measurable discounts. Finally, keep accurate and timely documentation of repairs, upgrades and safety features—these can sometimes reduce your premiums or speed up claims handling.

While higher insurance costs can feel unavoidable, understanding the specific factors that affect your rate gives you tools to act. Between responsible driving, smart coverage choices, and periodic market checks, you can often reduce your costs or at least slow the rate of increase.

Experts quoted: Dr. Linda Martinez, Professor of Insurance Economics, University of Michigan; James O’Connor, CEO of SafeDrive Insurance; Aisha Khan, Claims Analyst at Veritas Analytics; Marcus Lee, Automotive Industry Analyst at GreenRoad Research; Priya Nair, Consumer Advocate at Citizens for Fair Rates.